[Congressional Bills 111th Congress]
[From the U.S. Government Publishing Office]
[S. 722 Introduced in Senate (IS)]

111th CONGRESS
  1st Session
                                 S. 722

  To amend the Internal Revenue Code of 1986 to provide for permanent 
alternative minimum tax relief, middle class tax relief, and estate tax 
relief, and to permanently extend certain expiring provisions, and for 
                            other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             March 26, 2009

 Mr. Baucus (for himself, Mr. Rockefeller, and Mr. Schumer) introduced 
the following bill; which was read twice and referred to the Committee 
                               on Finance

_______________________________________________________________________

                                 A BILL


 
  To amend the Internal Revenue Code of 1986 to provide for permanent 
alternative minimum tax relief, middle class tax relief, and estate tax 
relief, and to permanently extend certain expiring provisions, and for 
                            other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE, ETC.

    (a) Short Title.--This Act may be cited as the ``Taxpayer Certainty 
and Relief Act of 2009''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.
    (c) Table of Contents.--The table of contents of this Act is as 
follows:

Sec. 1. Short title, etc.
           TITLE I--PERMANENT ALTERNATIVE MINIMUM TAX RELIEF

Sec. 101. Exemption amounts made permanent.
Sec. 102. Exemption amounts indexed for inflation.
Sec. 103. Alternative minimum tax relief for nonrefundable credits.
              TITLE II--PERMANENT MIDDLE CLASS TAX RELIEF

Sec. 201. Permanent reduction in tax rates for lower-income and middle-
                            income individuals.
Sec. 202. Permanent reduction in rates on capital gains for lower-
                            income and middle-income taxpayers.
Sec. 203. Modifications to child tax credit.
Sec. 204. Repeal of sunset on marriage penalty relief.
Sec. 205. Repeal of sunset on expansion of dependent care credit.
Sec. 206. Repeal of sunset on expansion of adoption credit and adoption 
                            assistance programs.
Sec. 207. Expansion of earned income tax credit.
                 TITLE III--PERMANENT ESTATE TAX RELIEF

Sec. 301. Permanent extension of estate tax as in effect in 2009.
Sec. 302. Unified credit increased by unused unified credit of deceased 
                            spouse.

           TITLE I--PERMANENT ALTERNATIVE MINIMUM TAX RELIEF

SEC. 101. EXEMPTION AMOUNTS MADE PERMANENT.

    (a) In General.--Paragraph (1) of section 55(d) is amended--
            (1) by striking ``$45,000 ($70,950 in the case of taxable 
        years beginning in 2009)'' in subparagraph (A) and inserting 
        ``$70,950 in the case of'',
            (2) by striking ``$33,750 ($46,700 in the case of taxable 
        years beginning in 2009)'' in subparagraph (B) and inserting 
        ``$46,700 in the case of an individual who'', and
            (3) by striking ``paragraph (1)(A)'' in subparagraph (C) 
        and inserting ``subparagraph (A)''.
    (b) Repeal of EGTRRA Sunset.--Title IX of the Economic Growth and 
Tax Relief Reconciliation Act of 2001 (relating to sunset of provisions 
of such Act) shall not apply to section 701 of such Act (relating to 
increase in alternative minimum tax exemption).
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2009.

SEC. 102. EXEMPTION AMOUNTS INDEXED FOR INFLATION.

    (a) In General.--Subsection (d) of section 55 is amended by adding 
at the end the following new paragraph:
            ``(4) Inflation adjustment.--
                    ``(A) In general.--In the case of any taxable year 
                beginning in a calendar year after 2009, each of the 
                dollar amounts contained in subsection (b)(1)(A)(i) and 
                paragraphs (1)(A), (1)(B), (1)(D), (3)(A), and (3)(B) 
                of this subsection shall be increased by an amount 
                equal to--
                            ``(i) such dollar amount, multiplied by
                            ``(ii) the cost-of-living adjustment 
                        determined under section 1(f)(3) for the 
                        calendar year in which the taxable year begins, 
                        determined by substituting `calendar year 2008' 
                        for `calendar year 1992' in subparagraph (B) 
                        thereof.
                    ``(B) Rounding.--Any increase determined under 
                subparagraph (A) shall be rounded to the nearest 
                multiple of $100.''.
    (b) Conforming Amendments.--
            (1) Clause (iii) of section 55(b)(1)(A) is amended by 
        striking ``by substituting'' and all that follows through 
        ``appears.'' and inserting ``by substituting 50 percent of the 
        dollar amount otherwise applicable under subclause (I) and 
        subclause (II) thereof''.
            (2) Paragraph (3) of section 55(d) is amended--
                    (A) by striking ``or (2)'' in subparagraph (A),
                    (B) by striking ``and'' at the end of subparagraph 
                (B), and
                    (C) by striking subparagraph (C) and inserting the 
                following new subparagraphs:
                    ``(C) 50 percent of the dollar amount applicable 
                under subparagraph (A) in the case of a taxpayer 
                described in subparagraph (C) or (D) of paragraph (1), 
                and
                    ``(D) $150,000 in the case of a taxpayer described 
                in paragraph (2).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2009.

SEC. 103. ALTERNATIVE MINIMUM TAX RELIEF FOR NONREFUNDABLE CREDITS.

    (a) In General.--Subsection (a) of section 26 is amended to read as 
follows:
    ``(a) Limitation Based on Amount of Tax.--The aggregate amount of 
credits allowed by this subpart for the taxable year shall not exceed 
the sum of--
            ``(1) the taxpayer's regular tax liability for the taxable 
        year reduced by the foreign tax credit allowable under section 
        27(a), and
            ``(2) the tax imposed by section 55(a) for the taxable 
        year.''.
    (b) Conforming Amendments.--
            (1) Adoption credit.--
                    (A) Section 23(b) is amended by striking paragraph 
                (4).
                    (B) Section 23(c) is amended by striking paragraphs 
                (1) and (2) and inserting the following:
            ``(1) In general.--If the credit allowable under subsection 
        (a) for any taxable year exceeds the limitation imposed by 
        section 26(a) for such taxable year reduced by the sum of the 
        credits allowable under this subpart (other than this section 
        and sections 25D and 1400C), such excess shall be carried to 
        the succeeding taxable year and added to the credit allowable 
        under subsection (a) for such taxable year.''.
                    (C) Section 23(c) is amended by redesignating 
                paragraph (3) as paragraph (2).
            (2) Child tax credit.--
                    (A) Section 24(b) is amended by striking paragraph 
                (3).
                    (B) Section 24(d)(1) is amended--
                            (i) by striking ``section 26(a)(2) or 
                        subsection (b)(3), as the case may be,'' each 
                        place it appears in subparagraphs (A) and (B) 
                        and inserting ``section 26(a)'', and
                            (ii) by striking ``section 26(a)(2) or 
                        subsection (b)(3), as the case may be'' in the 
                        second last sentence and inserting ``section 
                        26(a)''.
            (3) Credit for interest on certain home mortgages.--Section 
        25(e)(1)(C) is amended to read as follows:
                    ``(C) Applicable tax limit.--For purposes of this 
                paragraph, the term `applicable tax limit' means the 
                limitation imposed by section 26(a) for the taxable 
                year reduced by the sum of the credits allowable under 
                this subpart (other than this section and sections 23, 
                25D, and 1400C).''.
            (4) Savers' credit.--Section 25B is amended by striking 
        subsection (g).
            (5) Residential energy efficient property.--Section 25D(c) 
        is amended to read as follows:
    ``(c) Carryforward of Unused Credit.--If the credit allowable under 
subsection (a) exceeds the limitation imposed by section 26(a) for such 
taxable year reduced by the sum of the credits allowable under this 
subpart (other than this section), such excess shall be carried to the 
succeeding taxable year and added to the credit allowable under 
subsection (a) for such succeeding taxable year.''.
            (6) Certain plug-in electric vehicles.--Section 30(c)(2) is 
        amended to read as follows:
            ``(2) Personal credit.--For purposes of this title, the 
        credit allowed under subsection (a) for any taxable year 
        (determined after application of paragraph (1)) shall be 
        treated as a credit allowable under subpart A for such taxable 
        year.''.
            (7) Alternative motor vehicle credit.--Section 30B(g)(2) is 
        amended to read as follows:
            ``(2) Personal credit.--For purposes of this title, the 
        credit allowed under subsection (a) for any taxable year 
        (determined after application of paragraph (1)) shall be 
        treated as a credit allowable under subpart A for such taxable 
        year.''.
            (8) New qualified plug-in electric vehicle credit.--Section 
        30D(c)(2) is amended to read as follows:
            ``(2) Personal credit.--For purposes of this title, the 
        credit allowed under subsection (a) for any taxable year 
        (determined after application of paragraph (1)) shall be 
        treated as a credit allowable under subpart A for such taxable 
        year.''.
            (9) Cross references.--Section 55(c)(3) is amended by 
        striking ``26(a), 30C(d)(2),'' and inserting ``30C(d)(2)''.
            (10) Foreign tax credit.--Section 904 is amended by 
        striking subsection (i) and by redesignating subsections (j) , 
        (k), and (l) as subsections (i), (j), and (k), respectively.
            (11) First-time home buyer credit for the district of 
        columbia.--Section 1400C(d) is amended to read as follows:
    ``(d) Carryforward of Unused Credit.--If the credit allowable under 
subsection (a) exceeds the limitation imposed by section 26(a) for such 
taxable year reduced by the sum of the credits allowable under subpart 
A of part IV of subchapter A (other than this section and section 25D), 
such excess shall be carried to the succeeding taxable year and added 
to the credit allowable under subsection (a) for such taxable year.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2009.

              TITLE II--PERMANENT MIDDLE CLASS TAX RELIEF

SEC. 201. PERMANENT REDUCTION IN TAX RATES FOR LOWER-INCOME AND MIDDLE-
              INCOME INDIVIDUALS.

    (a) In General.--Paragraph (2) of section 1(i) is amended to read 
as follows:
            ``(2) Reduction in rates.--The tables under subsections 
        (a), (b), (c), (d), and (e) shall be applied--
                    ``(A) in the case of taxable years beginning after 
                2008--
                            ``(i) by substituting `25%' for `28%' each 
                        place it appears (before the application of 
                        clause (ii)), and
                            ``(ii) by substituting `28%' for `31%' each 
                        place it appears, and
                    ``(B) in the case of taxable years beginning in 
                2009 and 2010--
                            ``(i) by substituting `33%' for `36%' each 
                        place it appears, and
                            ``(ii) by substituting `35%' for `39.6%' 
                        each place it appears.''.
    (b) Repeal of EGTRRA Sunset.--Title IX of the Economic Growth and 
Tax Relief Reconciliation Act of 2001 (relating to sunset of provisions 
of such Act) shall not apply to section 101 of such Act (relating to 
reduction in income tax rates for individuals).
    (c) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2008.

SEC. 202. PERMANENT REDUCTION IN RATES ON CAPITAL GAINS FOR LOWER-
              INCOME AND MIDDLE-INCOME TAXPAYERS.

    (a) In General.--
            (1) Regular tax.--Section 1(h)(1) is amended by 
        redesignating subparagraphs (D) and (E) as subparagraphs (E) 
        and (F), respectively, and by striking subparagraph (C) and 
        inserting the following:
                    ``(C) 15 percent of the lesser of--
                            ``(i) so much of the adjusted net capital 
                        gain (or, if less, taxable income) as exceeds 
                        the amount on which a tax is determined under 
                        subparagraph (B), or
                            ``(ii) the excess (if any) of--
                                    ``(I) amount of taxable income 
                                which would (without regard to this 
                                paragraph) be taxed at a rate below the 
                                second highest tax rate, over
                                    ``(II) the greater of the amounts 
                                determined under clauses (i) and (ii) 
                                of subparagraph (B);
                    ``(D) 20 percent of the adjusted net capital gain 
                (or, if less, taxable income) in excess of the sum of 
                the amounts on which tax is determined under 
                subparagraphs (B) and (C);''.
            (2) Minimum tax.--Section 55(b)(3) is amended by 
        redesignating subparagraph (D) as subparagraphs (E) and by 
        striking subparagraph (C) and inserting the following:
                    ``(C) 15 percent of the lesser of--
                            ``(i) so much of the adjusted net capital 
                        gain (or, if less, taxable excess) as exceeds 
                        the amount on which tax is determined under 
                        subparagraph (B), or
                            ``(ii) the excess described in section 
                        1(h)(1)(C)(ii), plus
                    ``(D) 20 percent of the adjusted net capital gain 
                (or, if less, taxable excess) in excess of the sum of 
                the amounts on which tax is determined under 
                subparagraphs (B) and (C), plus''.
            (3) Conforming amendments.--
                    (A) The following sections are each amended by 
                striking ``15 percent'' and inserting ``20 percent'':
                            (i) Section 1445(e)(1).
                            (ii) The second sentence of section 
                        7518(g)(6)(A).
                            (iii) Section 53511(f)(2) of title 46, 
                        United States Code.
                    (B) Section 1(h)(1)(B) is amended by striking ``5 
                percent (0 percent in the case of taxable years 
                beginning after 2007)'' and inserting ``0 percent''.
                    (C) Section 55(b)(3)(B) is amended by striking ``5 
                percent (0 percent in the case of taxable years 
                beginning after 2007)'' and inserting ``0 percent''.
                    (D) Section 1445(e)(6) is amended by striking ``15 
                percent (20 percent in the case of taxable years 
                beginning after December 31, 2010)'' and inserting ``20 
                percent''.
    (b) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to taxable years 
        beginning after December 31, 2010.
            (2) Withholding.--The amendment made by subsection 
        (a)(3)(A)(i) shall apply to amounts paid on or after January 1, 
        2011.
    (c) Repeal of JGTRRA Sunset.--Section 303 of the Jobs and Growth 
Tax Relief Reconciliation Act of 2003 is repealed.

SEC. 203. MODIFICATIONS TO CHILD TAX CREDIT.

    (a) Repeal of EGTRRA Sunset.--Title IX of the Economic Growth and 
Tax Relief Reconciliation Act of 2001 (relating to sunset of provisions 
of such Act) shall not apply to sections 201 (relating to modifications 
to child tax credit) and 203 (relating to refunds disregarded in the 
administration of Federal programs and federally assisted programs) of 
such Act.
    (b) Modification of Threshold Amount.--
            (1) In general.--Clause (i) of section 24(d)(1)(B) is 
        amended by striking ``$10,000'' and inserting ``$3,000''.
            (2) Repeal of inflation adjustment to earned income base.--
        Subsection (d) of section 24 (relating to portion of credit 
        refundable) is amended by striking paragraph (3).
            (3) Conforming amendment.--Section 24(d) is amended by 
        striking paragraph (4).
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2010.

SEC. 204. REPEAL OF SUNSET ON MARRIAGE PENALTY RELIEF.

    Title IX of the Economic Growth and Tax Relief Reconciliation Act 
of 2001 (relating to sunset of provisions of such Act) shall not apply 
to sections 301, 302, and 303(a) of such Act (relating to marriage 
penalty relief).

SEC. 205. REPEAL OF SUNSET ON EXPANSION OF DEPENDENT CARE CREDIT.

    Title IX of the Economic Growth and Tax Relief Reconciliation Act 
of 2001 (relating to sunset of provisions of such Act) shall not apply 
to section 204 of such Act (relating to dependent care credit).

SEC. 206. REPEAL OF SUNSET ON EXPANSION OF ADOPTION CREDIT AND ADOPTION 
              ASSISTANCE PROGRAMS.

    Title IX of the Economic Growth and Tax Relief Reconciliation Act 
of 2001 (relating to sunset of provisions of such Act) shall not apply 
to section 202 of such Act (relating to expansion of adoption credit 
and adoption assistance programs).

SEC. 207. EXPANSION OF EARNED INCOME TAX CREDIT.

    (a) Repeal of EGTRRA Sunset.--Title IX of the Economic Growth and 
Tax Relief Reconciliation Act of 2001 (relating to sunset of provisions 
of such Act) shall not apply to subsections (b) through (h) of section 
303 of such Act (relating to earned income tax credit).
    (b) Increase in Credit Percentage for Families With 3 or More 
Children.--Paragraph (1) of section 32(b) is amended by striking 
subparagraphs (B) and (C) and inserting the following new subparagraph:
                    ``(B) Increased credit percentage for families with 
                3 or more qualifying children.--In the case of an 
                eligible individual with 3 or more qualifying children, 
                the table in subparagraph (A) shall be applied by 
                substituting `45' for `40' in the second column 
                thereof.''.
    (c) Joint Returns.--
            (1) In general.--Subparagraph (B) of section 32(b)(2) is 
        amended by striking ``increased by'' and all that follows and 
        inserting ``increased by $5,000.''
            (2) Inflation adjustments.--Clause (ii) of section 
        32(j)(1)(B) is amended--
                    (A) by striking ``$3,000'' and inserting 
                ``$5,000'', and
                    (B) by striking ``calendar year 2007'' and 
                inserting ``calendar year 2008''.
    (d) Conforming Amendment.--Section 32(b) is amended by striking 
paragraph (3).
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2009.

                 TITLE III--PERMANENT ESTATE TAX RELIEF

SEC. 301. PERMANENT EXTENSION OF ESTATE TAX AS IN EFFECT IN 2009.

    (a) Restoration of Unified Credit Against Gift Tax.--Paragraph (1) 
of section 2505(a) (relating to general rule for unified credit against 
gift tax), after the application of subsection (g), is amended by 
striking ``(determined as if the applicable exclusion amount were 
$1,000,000)''.
    (b) Exclusion Equivalent of Unified Credit Equal to $3,500,000.--
Subsection (c) of section 2010 (relating to unified credit against 
estate tax) is amended to read as follows:
    ``(c) Applicable Credit Amount.--
            ``(1) In general.--For purposes of this section, the 
        applicable credit amount is the amount of the tentative tax 
        which would be determined under section 2001(c) if the amount 
        with respect to which such tentative tax is to be computed were 
        equal to the applicable exclusion amount.
            ``(2) Applicable exclusion amount.--
                    ``(A) In general.--For purposes of this subsection, 
                the applicable exclusion amount is $3,500,000.
                    ``(B) Inflation adjustment.--In the case of any 
                decedent dying in a calendar year after 2010, the 
                dollar amount in subparagraph (A) shall be increased by 
                an amount equal to--
                            ``(i) such dollar amount, multiplied by
                            ``(ii) the cost-of-living adjustment 
                        determined under section 1(f)(3) for such 
                        calendar year by substituting `calendar year 
                        2009' for `calendar year 1992' in subparagraph 
                        (B) thereof.
                If any amount as adjusted under the preceding sentence 
                is not a multiple of $10,000, such amount shall be 
                rounded to the nearest multiple of $10,000.''.
    (c) Maximum Estate Tax Rate Equal to 45 Percent.--
            (1) In general.--Subsection (c) of section 2001 (relating 
        to imposition and rate of tax) is amended--
                    (A) by striking ``but not over $2,000,000'' in the 
                table contained in paragraph (1),
                    (B) by striking the last 2 items in such table,
                    (C) by striking ``(1) In general.--'', and
                    (D) by striking paragraph (2).
            (2) Conforming amendment.--Paragraphs (1) and (2) of 
        section 2102(b) are amended to read as follows:
            ``(1) In general.--A credit in an amount that would be 
        determined under section 2010 as the applicable credit amount 
        if the applicable exclusion amount were $60,000 shall be 
        allowed against the tax imposed by section 2101.
            ``(2) Residents of possessions of the united states.--In 
        the case of a decedent who is considered to be a `nonresident 
        not a citizen of the United States' under section 2209, the 
        credit allowed under this subsection shall not be less than the 
        proportion of the amount that would be determined under section 
        2010 as the applicable credit amount if the applicable 
        exclusion amount were $175,000 which the value of that part of 
        the decedent's gross estate which at the time of the decedent's 
        death is situated in the United States bears to the value of 
        the decedent's entire gross estate, wherever situated.''.
    (d) Modifications of Estate and Gift Taxes To Reflect Differences 
in Unified Credit Resulting From Different Tax Rates.--
            (1) Estate tax.--
                    (A) In general.--Section 2001(b)(2) (relating to 
                computation of tax) is amended by striking ``if the 
                provisions of subsection (c) (as in effect at the 
                decedent's death)'' and inserting ``if the 
                modifications described in subsection (g)''.
                    (B) Modifications.--Section 2001 is amended by 
                adding at the end the following new subsection:
    ``(g) Modifications to Gift Tax Payable To Reflect Different Tax 
Rates.--For purposes of applying subsection (b)(2) with respect to 1 or 
more gifts, the rates of tax under subsection (c) in effect at the 
decedent's death shall, in lieu of the rates of tax in effect at the 
time of such gifts, be used both to compute--
            ``(1) the tax imposed by chapter 12 with respect to such 
        gifts, and
            ``(2) the credit allowed against such tax under section 
        2505, including in computing--
                    ``(A) the applicable credit amount under section 
                2505(a)(1), and
                    ``(B) the sum of the amounts allowed as a credit 
                for all preceding periods under section 2505(a)(2).
        For purposes of paragraph (2)(A), the applicable credit amount 
        for any calendar year before 1998 is the amount which would be 
        determined under section 2010(c) if the applicable exclusion 
        amount were the dollar amount under section 6018(a)(1) for such 
        year.''.
            (2) Gift tax.--Section 2505(a) (relating to unified credit 
        against gift tax) is amended by adding at the end the following 
        new flush sentence:
``For purposes of applying paragraph (2) for any calendar year, the 
rates of tax in effect under section 2502(a)(2) for such calendar year 
shall, in lieu of the rates of tax in effect for preceding calendar 
periods, be used in determining the amounts allowable as a credit under 
this section for all preceding calendar periods.''.
    (e) Increase in Aggregate Reduction in Fair Market Value Allowed 
Under Special Use Valuation.--Section 2032A(a) (relating to value based 
on use under which property qualifies) is amended--
            (1) by striking ``$750,000'' in paragraph (2) and inserting 
        ``$3,500,000,
            (2) by striking ``1998'' in paragraph (3) and inserting 
        ``2010'',
            (3) by striking ``$750,000'' in paragraph (3) and inserting 
        ``$3,500,000'', and
            (4) by striking ``1997'' in paragraph (3) and inserting 
        ``2009''.
    (f) Effective Date.--The amendments made by this section shall 
apply to estates of decedents dying, generation-skipping transfers, and 
gifts made, after December 31, 2009.
    (g) Additional Modifications to Estate Tax.--
            (1) In general.--The following provisions of the Economic 
        Growth and Tax Relief Reconciliation Act of 2001, and the 
        amendments made by such provisions, are hereby repealed:
                    (A) Subtitles A and E of title V.
                    (B) Subsection (d), and so much of subsection 
                (f)(3) as relates to subsection (d), of section 511.
                    (C) Paragraph (2) of subsection (b), and paragraph 
                (2) of subsection (e), of section 521.
        The Internal Revenue Code of 1986 shall be applied as if such 
        provisions and amendments had never been enacted.
            (2) Sunset not to apply to title v of egtrra.--Section 901 
        of the Economic Growth and Tax Relief Reconciliation Act of 
        2001 shall not apply to title V of such Act.
            (3) Repeal of deadwood.--
                    (A) Sections 2011, 2057, and 2604 are hereby 
                repealed.
                    (B) The table of sections for part II of subchapter 
                A of chapter 11 is amended by striking the item 
                relating to section 2011.
                    (C) The table of sections for part IV of subchapter 
                A of chapter 11 is amended by striking the item 
                relating to section 2057.
                    (D) The table of sections for subchapter A of 
                chapter 13 is amended by striking the item relating to 
                section 2604.

SEC. 302. UNIFIED CREDIT INCREASED BY UNUSED UNIFIED CREDIT OF DECEASED 
              SPOUSE.

    (a) In General.--Section 2010(c), as amended by section 301(b), is 
amended by striking paragraph (2) and inserting the following new 
paragraphs:
            ``(2) Applicable exclusion amount.--For purposes of this 
        subsection, the applicable exclusion amount is the sum of--
                    ``(A) the basic exclusion amount, and
                    ``(B) in the case of a surviving spouse, the 
                aggregate deceased spousal unused exclusion amount.
            ``(3) Basic exclusion amount.--
                    ``(A) In general.--For purposes of this subsection, 
                the basic exclusion amount is $3,500,000.
                    ``(B) Inflation adjustment.--In the case of any 
                decedent dying in a calendar year after 2010, the 
                dollar amount in subparagraph (A) shall be increased by 
                an amount equal to--
                            ``(i) such dollar amount, multiplied by
                            ``(ii) the cost-of-living adjustment 
                        determined under section 1(f)(3) for such 
                        calendar year by substituting `calendar year 
                        2009' for `calendar year 1992' in subparagraph 
                        (B) thereof.
                If any amount as adjusted under the preceding sentence 
                is not a multiple of $10,000, such amount shall be 
                rounded to the nearest multiple of $10,000.
            ``(4) Aggregate deceased spousal unused exclusion amount.--
        For purposes of this subsection, the term `aggregate deceased 
        spousal unused exclusion amount' means the lesser of--
                    ``(A) the basic exclusion amount, or
                    ``(B) the sum of the deceased spousal unused 
                exclusion amounts computed with respect to each 
                deceased spouse of the surviving spouse.
            ``(5) Deceased spousal unused exclusion amount.--For 
        purposes of this subsection, the term `deceased spousal unused 
        exclusion amount' means, with respect to the surviving spouse 
        of any deceased spouse dying after December 31, 2009, the 
        excess (if any) of--
                    ``(A) the basic exclusion amount of the deceased 
                spouse, over
                    ``(B) the amount with respect to which the 
                tentative tax is determined under section 2001(b)(1) on 
                the estate of such deceased spouse.
            ``(6) Special rules.--
                    ``(A) Election required.--A deceased spousal unused 
                exclusion amount may not be taken into account by a 
                surviving spouse under paragraph (5) unless the 
                executor of the estate of the deceased spouse files an 
                estate tax return on which such amount is computed and 
                makes an election on such return that such amount may 
                be so taken into account. Such election, once made, 
                shall be irrevocable. No election may be made under 
                this subparagraph if such return is filed after the 
                time prescribed by law (including extensions) for 
                filing such return.
                    ``(B) Examination of prior returns after expiration 
                of period of limitations with respect to deceased 
                spousal unused exclusion amount.--Notwithstanding any 
                period of limitation in section 6501, after the time 
                has expired under section 6501 within which a tax may 
                be assessed under chapter 11 or 12 with respect to a 
                deceased spousal unused exclusion amount, the Secretary 
                may examine a return of the deceased spouse to make 
                determinations with respect to such amount for purposes 
                of carrying out this subsection.
            ``(7) Regulations.--The Secretary shall prescribe such 
        regulations as may be necessary or appropriate to carry out 
        this subsection.''.
    (b) Conforming Amendments.--
            (1) Paragraph (1) of section 2505(a), as amended by section 
        301(a), is amended to read as follows:
            ``(1) the applicable credit amount in effect under section 
        2010(c) which would apply if the donor died as of the end of 
        the calendar year, reduced by''.
            (2) Section 2631(c) is amended by striking ``the applicable 
        exclusion amount'' and inserting ``the basic exclusion 
        amount''.
            (3) Section 6018(a)(1) is amended by striking ``applicable 
        exclusion amount'' and inserting ``basic exclusion amount''.
    (c) Effective Date.--The amendments made by this section shall 
apply to estates of decedents dying, generation-skipping transfers, and 
gifts made, after December 31, 2009.
                                 <all>